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3.—(1) For the purposes of these Regulations an unauthorised unit trust is an “exempt unauthorised unit trust” with respect to a period of account if—
(a)its trustees are UK resident for the period,
(b)throughout the period all of its unit holders are eligible investors, and
(c)it is approved under these Regulations for the period.
(2) For the purposes of these Regulations a unit holder is an “eligible investor” if—
(a)any gain accruing in the event of a disposal of its units would be wholly exempt from capital gains tax or corporation tax (otherwise than by reason of residence), or
(b)it holds all of its units pending disposal in the capacity of manager of the unauthorised unit trust.
(3) In determining whether paragraph (2)(a) applies no account is to be taken of the possibility of a charge to corporation tax on income in respect of a gain accruing on a disposal by an insurance company or a friendly society.
(4) An unauthorised unit trust is not to be regarded as failing to meet the condition in paragraph (1)(b) in relation to any unit holder if—
(a)the managers or trustees of the unit trust become aware at any time that the unit holder is not an eligible investor,
(b)they could not reasonably have been expected to have become aware of that fact before that time, and
(c)the unit holder disposes of its units before the end of the period of 28 days beginning with that time.
(5) Paragraph (4) may not be relied on more than twice in any period of ten years.
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